Vale the Newsprint Media. My Last Reflection….

Some time ago I wrote about the problems of generating income under the internet business model due to the difficulty in controlling property rights. For example, with music and movies/DVD the marginal profit is zero because the only one copy needs to be sold for it to be freely available to all consumers. As such, many elements of the music and film industries as they were historically structured are being forced to reinvent themselves into new viable business models.

Well it seems recently, that the online news market is now thrashing around with the realisation that giving it away isn’t a necessary going to pave the corporate hallways with gold. The historical business model for printed news has been to generate income partly from a product fee and partly from advertising – particularly classified advertising (houses, motor vehicles etc.). But on the net, generally there has been no charge and the advertising revenue is insufficient to pay the rent and the journo’s.

So the solution according to some news providers is to charge people to view it. One option is to charge intermediary services who aggregate the news on the web. Another option is to charge the consumer, for example, per article or a service access subscription fee.

First of all, the internet model for printed news was really a pretty poor business model.  It merely transports on to the web what was once printed on paper.  It looks pretty much the same on the web as it does on paper. The only real value is that news is delivered to the consumer a bit more quickly, and lets you vent your spleen (but does anyone really care).  It never really leveraged any greater value from the web than it provided on paper.

The end of newsprint on the web is coming because  the news market has both privately and publicly funded competitors. So if the privates start charging, unless the publics follow suit the news will still be available for nothing. Furthermore, the average day to day news item is typically highly substitutable, not just between online providers, but also other media mediums – television and radio for example. So if I can’t get news for free from company A, I can probably get it from company B for free.   The only reason I would pay for something from company A is if their value proposition provided something unique that I really wanted and couldn’t get anywhere else for free.

The solution is far from clear.  Are you and I going to pay for it, or are there too many other options to get the same information?  Even the idea that news providers could charge the intermediaries is only viable if they can make a buck out of it.

The newspaper owners and defendants argue that there is no solution then the the old privately owned news print providers are on a crash course with market failure.  And if the privates fail and leave only the publics, then who owns the publics?  Governments of course.  And do we want governments controlling and filtering the news we get – NOT.

More pertinent is the fact that the news market is a lot more than printed news in this day and age – in fact both public and private  newspapers compete with a mass of 24 hour television news services not to mention the radio news services available across the globe on the internet and twitter and blogs which report first hand in moments from the heart of the latest global catastrophe.  In this context, the death of newsprint is really like an aged grandfather; admired and loved but past their prime.  Struggling to grasp a world which is evolving beyond their grasp.

Of course, much of the news print media is filled with garbage fed to us by those who can afford the  cost of running publicity strategies.  Police reports, government reports, companies trying to flavour their public perception.  It’s all stuff which forms the background of  the day, to which we pay little attention, which we forget almost as we hear it and which has no real impact on our own lives.   We can surely fill that space with other more invigorating stimuli – a novel, some music or idle chat with another person?

Defendants also emphasise the history of investigative journalism uncovering  some corruption or fraud vital to the ongoing stability of our society.  Alas – we listen and watch this on TV now – reports, debates and analysis until our minds are boggled with information.  Maybe that’s the issue.  When something’s written down in front of you logically – you have time to think about it (if you make the time).   Perhaps that will be the major loss.  The unique value of the written news report – the opportunity for reflection.

Perhaps what we need is is a new business model to reflect on complex issues in our society.

“I Can’t Trust Nobody…(in business)”

If there are any lessons from 2008, it’s about trust – or who not to trust. It’s a bit of an issue really, because trust is a pretty important part of doing business. In fact its the foundation of an efficient economy. If your a business, you need to trust your staff and your suppliers, your banker (dare I say it) and your insurer. If your a consumer, you need to trust the producer and the product description.

The sub-prime events have revealed a lot about trust – or at least what happens if its misplaced.  If you trust people who don’t deserve to be trusted then the whole system of business can break down.  We trusted financiers we thought were smarter  and they weren’t.  We trusted mortgage salesman who sold unnafordable loans , we trusted banks offering credit that couldn’t be repayed and on so on.

The world is too big and complex not to trust others – we need too believe that they know what they are doing and will give us good guidance and advice.  Without trust it all breaks down – and it did.

Many countries in the world who had prior experience of misplaced trust and have the benefit of regulations to underpin financial integrity are responding better to the sub prime mess.    But unless we want an army of regulatory bureacrats overseeing all our decisions, we must all start taking reesponsibility – learning more about what we can afford, learning to ask the hard questions of those in positions of responsibility.

To trust others we need to be confident in their ability to understand and act for the benefit of everyone.  Those who are take a role which effects the lives of others need to ask themsleves ‘do I have the capacity and knowledge to do this job competently and with integrity?’.  Those that allow them to take the job need to ask them the same question and piss them off quickly if they can’t.

The fact that so many in positions of responsibility performed so poorly gives no excuse to place any individual on a pedestal beyond accountability.  No manager, CEO or Executive is that much of a superstar that they shouldn’t be made to stand and account for their actions.  There are no Gods of business – just ordinary men and women. When they perform well we must rteward them and when they stuff up, we’d better find them before they bring us down.

Sub-Prime Opportunism

One of the distinguishing elements of a modern wealthy economy is its capacity to afford to protect and care for its citizens. A wealthy society protects its members with a legal framework of laws based on individual rights, cooperation and respect, and a system of policing. It doesn’t wait for catastrophes to occur which can be otherwise predicted and avoided. It manages innovation to optimise its contribution to society by ensuring as far as possible that risks from the innovation are mitigated. Yet it sometimes appears that these principles of moral hazard management are forgotten in the frenzied adherence to economic principles of market competition, corporate growth and the attainment of personal wealth.

In the case of sub-prime market, it seems that market failure has had (is having) a significant social cost. Because the value of the underlying asset is less than the value of the loan, many thousands of people who have had to forfeit their homes are worse off than they otherwise would have been. Providing access to credit beyond their means has enabled them to purchase property at inflated prices which they must now sell at lower prices, incurring a debt which will take years to pay off, or send them bankrupt, and ironically perhaps, further diminishing their access to credit.

I find it extraordinary that some proponents of the sub-prime market argue its favour on the basis of social benefit – that it creates an opportunity for people to obtain credit who would otherwise have been excluded from home ownership. Events have surely seen this argument fall on its sword. Who ever thought that you could address the plight of people with a poor credit history by lowering the criteria for credit worthiness? If ever theres a case of addressing the symptoms rather than the cause…

What is curious is how such a fundamentally flawed business model grew to such size to have such impact. What seems to be clear is that the borrowers had no real understanding of the risk of entering the loan (honestly or not), that the sellers took little responsibility for the consequences of their sale and the lenders (who arguably should have been more informed) had no idea what what was happening down the supply chain. Everyone was just carried away on a wave of super-inflation and greed. In fact the business model breaks all the rules of sustainable and prosperous business eg. unsound business proposition, poor transparency, poor analysis, poor product control, poor ethics – you name it.

Around the world, many mature sustainable industries manage their supply chains rigorously through sophisticated rules and procedures framed in contracts or regulations. We have a duty as modern societies to ensure that such rigor is placed around all aspects of economy – particularly complex products involving finance.

As for the free market advocates who want to pass it all off as market adjustment. There was no real market in the first place – just a roller coaster driven on opportunism and stupidity. What a big mess.